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What to consider when auditing revenue recognition implementation

In a staff audit practice alert issued Thursday, the PCAOB provided information for auditors to consider as they apply the board’s standards to auditing of clients’ implementation of FASB’s new revenue recognition standard.

The new revenue recognition standard takes effect in 2018 for public companies and the following year for nonpublic companies. Companies implementing the standard may develop new systems, processes, and controls as they prepare to gather data, make estimates, and provide disclosures required by the new standard.

This may pose increased risks of material misstatement, including misstatement due to fraud, according to the PCAOB alert. In Staff Audit Practice Alert No. 15, Matters Related to Auditing Revenue From Contracts With Customers, the PCAOB highlights the board’s requirements and other considerations for audits, including:

Transition disclosures and transition adjustments.

Internal control over financial reporting.

Fraud risks.

Revenue recognition.

Disclosures.

“We are publishing this alert to help auditors apply relevant PCAOB requirements in upcoming interim reviews and year-end audits,” Martin Baumann, PCAOB chief auditor and director of professional standards, said in a news release. “We have been monitoring implementation of this standard, and we’ve heard from a number of interested parties, including the PCAOB Standing Advisory Group, that guidance on auditing revenue would be helpful.”